A report from Le Monde that Credit Agricole may oust their chief executive and chairman also hit the bank.

Overall, the German DAX 30 index (1876534) fell 2.4% to 6,153.30, the French CAC-40 index (1804546) dropped 3.1% to 4,100.64 and the U.K. FTSE 100 index (UKX) fell back into bear market territory after it lost 2.7% to 5,261.60. See London Markets for more.

U.S. stocks opened deep in the red on Friday on worries over mortgage buyers Fannie Mae and Freddie Mac and a spike in oil prices. See Market Snapshot.

"The oil price has become a barometer of inflation fears and to some extent, market sentiment," noted strategists at State Street Global Markets.

Investors are worried about consumer spending trends as inflation rises, a point raised by General Electric
GE, -0.88%
as it reported in-line sector-quarter earnings. See full story.

Shares in General Electric's Dutch peer Philips
PHG, +0.88%
(00953) fell 6% in Amsterdam after Citigroup downgraded the light bulb-to-coffee maker to hold from buy, in part due to worries about consumer spending.

Real deals and speculation

Mergers and acquisitions were squarely on the agenda in Europe, after Citigroup
C, +1.04%
said that it has agreed to sell its German retail-banking operations to France's Credit Mutuel for 4.9 billion euros ($7.7 billion) in cash plus earnings accrued in 2008 through the closing of the deal. See full story.

Citigroup's German unit was one of three major German banking operations believed to be up for sale, with the others thought to include Deutsche Postbank (800100) and the Dresdner Bank division of Allianz (840400). See story on German bank M&A.

Shares of Deutsche Postbank climbed 2.3%, shrugging off reports that Lloyds TSB (LLOY)
LYG, +2.77%
has walked away from bidding for the firm.

Shares of Commerzbank (803200), which may merge with Dresdner, added 0.5%.

Shares of Allianz weren't doing as well, with the insurer losing 3.4%.

Analysts at Dolmen Securities highlighted that Allianz is one of three companies - the others being Travelers Cos.
TRV, +0.87%
and Allstate Corp.
ALL, +1.34%
- that are now more likely to be successful in winning the bidding for Royal Bank of Scotland's insurance operations after Zurich Financial Services pulled out of the running late Thursday.

Shares of Zurich Financial (001107539) shot up 4.2%. The company announced Friday that it will initially pay 650 million euros ($1.02 billion) to buy from Banco Sabadell (0113860A3) 50% of its life insurance and pension companies as well as 100 million euros for 50% of Banco Sabadell's general insurance company.

UBS analysts said that Zurich's exit from the RBS auction lifts a cloud over the stock: "We saw strategic logic in a deal but had concerns on price and the likelihood that equity would need to be issued to fund it."

Reversing a month of hostilities, Anheuser-Busch reportedly is in talks to be acquired by InBev in a deal that would see the iconic Budweiser brewer bought by the Belgian firm, likely for more than the $46 billion that's already on the table. See full story.

Deal-making is picking up overall in Europe, according to fortnightly data compiled by Thomson Reuters.

Year-to-date, the value of deals announced involving a European target totaled $564.4 billion, down from $1 trillion at the same point in 2007 but closer to the $647.6 billion recorded in 2006.

Of other companies on the move, shares in France's Areva (004524) climbed 2.8% after it was named as part of a consortium of engineering firms that is the preferred bidder to run the U.K.'s biggest nuclear site in a contract potentially worth over $42 billion. See full story.

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